Cancelling Christmas?How the FCC is Playing Chess
with
World MarketsMike VioletteDirector, American Certification Body

Consider the size of the
global electronics market: the volume of this trade is
in the neighborhood of $5 trillion[i].
US imports account for about $130B of this flow, much of
which is regulated by the Federal Communications
Commission.

Many of these devices are sold during
the annual Christmas spending spree. If some important
dialogue doesn’t advance between the US and our friends
in China and soon, it seems Christmas might just be
cancelled for some. Here’s why.

The FCC,
in Brief

FCC-regulated products include
most every radio transmitter and receiver, laptops,
tablets, printers, routers, computer peripheral devices,
television…the list goes on: nearly every conceivable
thing in your home or work (with maybe the exception of
your fridge, stove, washing machine and a few
others-unless they’re wireless). The purpose of the
regulations is to protect the airwaves from
interference.

In 2015, the FCC’s system issued
"grants" for 19,538 different devices, everything from
twenty-dollar toys to cellular base station systems
worth many hundreds of thousands of dollars. Thirty
percent of these devices were from Chinese companies[ii], nearly 6,000
devices and eighty-three percent of the growth of new
devices compared with 2014.

FCC Rules: A Game-Changer

But things are about to change, for in the waning days
of 2014 the FCC issued a Rulemaking that affects
Chinese-based test labs (and manufacturers and supply
chain people and retailers and, well, the
electronics-buying public). This rule-making, known as
Report and Order FCC-14-208, states, effectively, that
as of July 13, 2016, China test labs may no longer test
many electronics devices for the US market.

This will
have a huge impact on commerce: radios, mobile phones,
computers, tablets, laptops, printers, wearables, smart
watches, displays, etc., may no longer be tested in the
Middle Kingdom. These Rule changes also affect other
“non-MRA Partner Economies,” including India, Mexico,
Malaysia, Brazil, Russia, Indonesia and many other
countries, but not to the extent that it will affect the
China test laboratories and manufacturers. It’s a simple result of the size of the market of electronics coming from China.

What it means is that China
manufacturers and labs will have to find alternatives if
they cannot test in the PRC. They could subcontract this
work, but this will affect test queues in Taiwan, Hong
Kong, Singapore and elsewhere (economies that are US MRA
partners). Hence, it will also ripple the supply chain
for thousands of products, not to mention buyers,
retailers, shipping and logistics and, ultimately
consumers. The timing for all of this is interesting—and
affects Christmas 2016—because, typically, manufacturers
must be in a test lab by August to get the right
certifications in time for manufacturing, packaging,
shipping, distribution and stockings.

How Did This
Happen?

To explain how this game of brinkmanship came
to be, it is necessary to understand a framework of
Agreements under the Asia-Pacific Economic Cooperation
Telecommunications and Information Working Group (APEC
TEL). A multi-lateral Mutual Recognition Arrangement
(MRA) was signed back in 1998 and implemented with the
US, over time and on a bilateral basis, by seven
economies. A long-time holdout has been China. An MRA
allows, in general, the acceptability of test data (and
eventually Certification, with full implementation)
between countries that sign onto the MRA. This is a
market-access issue with powerful economic and political
ramifications and there are many pawns in the games,
test labs being just one.

US negotiators worked for
several years to get China to the table to discuss the
MRA under the APEC TEL framework, but with no progress.
There are several reasons for the talks not getting
purchase (protectionism, globalization and the hard-knuckled reality of China’s amazing but bruising economic transformation). Simply, China is not a monolithic entity that acts with a united will. There are many stakeholders and turf issues that this change brings and it creates some conundrums within, all overshadowed by a broader constant worry about keeping a lid on social well-being, all heated by internal and external economic and competitive pressures. In any case, to me, both sides missed opportunities to engage and critical cultural misunderstandings and structural confusion contributed to the current situation. Because of this lack of progress the FCC—likely in concert with other US Federal interests—“closed a loophole” of-sorts that currently allows the testing of products in non-MRA Countries. This is really the sunset of the FCC 2.948 Listing program for labs, which affects the international testing ecosystem (which includes some US labs).
This change raised the visibility of this issue to the highest levels in China’s leadership structure and is a hot topic in the ongoing Joint Commission on Commerce and Trade dialogue.

It’s
time to move the queen.

Several Ways for this to Play
Out

There are several ways this could play out: China
could sign the MRA and this all goes away (but this
could take a long time). A “Petition for
Reconsideration” has been submitted to the FCC that
asks, in-part, for a delay of implementation. This could
take the pressure off in the short term, but doesn’t
solve the MRA issue.

If the MRA talks advance, but the
deadline comes and goes, China labs will be forced to
subcontract testing to labs in MRA-partner countries.
This is where a big logjam is likely: there is simply
not enough capacity to handle the workload. Testing
queues will back up, buyers won’t have products to ship
and Christmas might just be cancelled.

However, buried
in the FCC Rulemaking is a provision that allows the FCC
to enact “special procedures,” but the Rules don’t
elucidate. If ship-dates slip, the economic pressures
from the global electronics industry could put pressure
on the FCC to enact these procedures. However, for some
folks involved in the discussions, this would be like
getting a lump of coal in their stocking.